Sec. & Exch. Comm'n v. Ripple Labs Inc.

• Court: U.S. District Court — Southern District of New York
• Writing for the Court: SARAH NETBURN UNITED STATES MAGISTRATE JUDGE
• Decision Date: 11 April 2022
• Docket Number: 20-CV-10832 (AT) (SN)
• Citation: Sec. & Exch. Comm'n v. Ripple Labs Inc., 20-CV-10832 (AT) (SN) (S.D. N.Y. Apr 11, 2022)
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. RIPPLE LABS, INC., et al., Defendants.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. RIPPLE LABS, INC., et al., Defendants.

No. 20-CV-10832 (AT) (SN)

United States District Court, S.D. New York

April 11, 2022

OPINION & ORDER

SARAH NETBURN UNITED STATES MAGISTRATE JUDGE

By letter motion, the Securities and Exchange Commission (“SEC”) moves for partial reconsideration or clarification of the Court's January 13, 2022 Order which held in relevant part that emails concerning and draft versions of a June 14, 2018 speech given by then-Director William Hinman (the “Speech”) are not shielded by the deliberate process privilege. The motion is DENIED as to reconsideration and GRANTED as to clarification.

BACKGROUND

The Court assumes the parties' familiarity with the facts. The SEC brings this action under Section 5 of the Securities Act of 1933, alleging that Defendants Bradley Garlinghouse Christian Larsen, and Ripple Labs Inc. (collectively “Defendants”) are currently engaging in the unlawful offer or sale of securities, and that Defendants Larsen and Garlinghouse aided and abetted Ripple's violations.

As relevant here, Defendants sought certain documents from the SEC to challenge the SEC's allegations that Larsen and Garlinghouse were objectively reckless in believing that XRP was not a security and that Ripple was on “fair notice” that XRP was a security. Following the Court's ruling on the relevance of certain categories of documents, the SEC searched its files and raised objections to the production of certain challenged documents on the ground that they are protected by the deliberative process privilege. The Court conducted an in camera review of exemplar documents identified in Appendix A to Defendants' motion. ECF No. 289-11. Based on its review of the documents, the Court granted Defendants' motion to compel production as to certain parts of Entry 1 of Appendix A, and in full as to Entry 9 of Appendix A. ECF No. 413.

The SEC now asks the Court to reconsider its ruling as to Entry 9 of Appendix A or, in the alternative, to clarify whether the Court's January 13, 2022 Order compels production of all emails related to and drafts of the Speech on the SEC's privilege log. In support of its motion, the SEC has submitted 10 additional documents for the Court's in camera review.^[1]

DISCUSSION

I. Reconsideration

A. Legal Standard

Reconsideration of a previous order by the court is an “extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources.” In re Health Mgmt. Sys. Inc. Sec. Litig., 113 F.Supp.2d 613, 614 (S.D.N.Y. 2000) (cleaned up); Anwar v. Fairfield Greenwich Ltd., 164 F.Supp.3d 558, 560 (S.D.N.Y. 2016) (same).^[2] The decision to grant or deny such a motion is “committed to the sound discretion of the district court.” Wilder v. News Corp., No. 11-cv-4947 (PGG), 2016 WL 5231819, at *3 (S.D.N.Y. Sept. 21, 2016) (quoting Liberty Media Corp. v. Vivendi Universal. S. A., 861 F.Supp.2d 262, 265 (S.D.N.Y. 2012)). “The reconsideration rule must be ‘narrowly construed and strictly applied so as to “avoid duplicative rulings on previously considered issues.”'” Sigmon v. Goldman Sachs Mortg. Co., 229 F.Supp.3d 254, 257 (S.D.N.Y. 2017) (quoting Merced Irrigation Dist. v. Barclays Bank PLC, 178 F.Supp.3d 181, 183 (S.D.N.Y. 2016)).

The standard for granting a motion for reconsideration “is strict, and reconsideration will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked-matters, in other words, that might reasonably be expected to alter the conclusion reached by the court.” Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). “[A] party may not advance new facts, issues, or arguments not previously presented to the Court” on a motion for reconsideration. Nat'l Union Fire Ins. Co. of Pittsburgh, PA. v. Stroh Companies, Inc., 265 F.3d 97, 115 (2d Cir. 2001) (quoting Polsby v. St. Martin's Press, Inc., No. 97-cv-690 (MBM), 2000 WL 98057, at *1 (S.D.N.Y. Jan. 18, 2000)). Nor are motions for reconsideration “a vehicle for relitigating old issues, presenting the case under new theories, securing a rehearing on the merits, or otherwise taking a second bite at the apple.” Analytical Survs., Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir. 2012), as amended (July 13, 2012) (quoting Sequa Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d Cir. 1998)) (cleaned up); Schrader, 70 F.3d at 257 (“[A] motion to reconsider should not be granted where the moving party seeks solely to relitigate an issue already decided.”).

Reconsideration may be granted because of “an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.” Luv n' Care Ltd. v. Goldberg Cohen, LLP, No. 15-cv-9248 (NRB), 2016 WL 6820745, at *1 (S.D.N.Y. Nov. 10, 2016) (internal quotation marks omitted) (quoting Hollander v. Members of the Bd. of Regents, 524 Fed.Appx. 727, 729 (2d Cir. 2013)); accord Virgin Atl. Airways, Ltd. v. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992). “To these ends, a request for reconsideration . . . must demonstrate controlling law or factual matters put before the court in its decision on the underlying matter that the movant believes the court overlooked and that might reasonably be expected to alter the conclusion reached by the court.” RST (2005) Inc. v. Rsch. in Motion Ltd., 597 F.Supp.2d 362, 365 (S.D.N.Y. 2009) (emphasis added). “[A] reconsideration motion cannot be used as a vehicle to make new arguments that contradict or are inconsistent with a party's earlier submission.” Wilder, 2016 WL 5231819, at *5 (citing RST (2005) Inc., 597 F.Supp.2d at 365; then citing Davidson v. Scully, 172 F.Supp.2d 458, 461 (S.D.N.Y. 2001)). The strict and narrow application of the reconsideration rule “ensure[s] the finality of decisions and [prevents] the practice of a losing party examining a decision and then plugging the gaps of a lost motion with additional matters.” Henderson v. Metro. Bank & Tr. Co., 502 F.Supp.2d 372, 376 (S.D.N.Y. 2007) (citation omitted).

B. Application

The SEC has identified no intervening change of controlling law or any other controlling decisions unaddressed by the Court's January 13, 2022 Order.

The SEC claims, however, that the Court overlooked two factual issues: first, the comments left by SEC staff on drafts of the Speech (as well as the drafts and the final text themselves) show that Hinman made the Speech in order to communicate the approach of the SEC's Division of Corporation Finance on the regulation of digital asset offerings, as confirmed by the relevant regulations governing SEC employees' public statements. Relatedly, the SEC argues that the Speech was the end-product of “significant collaboration” by many staffers across the SEC, as evidenced by the 68 drafts and associated commentary in the SEC's privilege logs. Deliberations regarding the Speech's content were, according to the SEC, an essential link in the agency's deliberations about whether transactions in a particular digital asset involve the sale of a security.

1. The Speech's Purpose

The SEC's assertion that the Speech was intended to communicate Corporation Finance's approach to regulating digital asset offerings is inconsistent with the SEC's and Hinman's previous position that the Speech was intended to and did reflect his personal views. See ECF No. 255 (SEC Letter Motion to Quash Subpoena) at 3 (“Director Hinman . . . [made] a public speech on June 14, 2018, in which he expressed his own view that the offers and sales of the digital asset Ether at that time were ‘not securities transactions,' based on his understanding of the specific facts and circumstances of Ether and the structure of the Ethereum blockchain at the time.” (emphases added)); ECF No. 255-2 (Hinman Decl.) ¶¶ 11-13 (noting that the Speech was “intended to express [Hinman's] own personal views”); ECF 492-2 (SEC Hinman Dep. Tr.) at 132:9-10 (Hinman believed that the speech “provided clarity as to how [he] was looking at those issues”); ECF No. 436-3 (Defs.' Hinman Dep. Tr.) at 233:14-15, 19-20 (“The speech reflects [Hinman's] thoughts. . . . They [statements made during the speech] are intended to be a speech of [his] thoughts in the space.”).

The SEC may not now argue otherwise because it disagrees with the Court's conclusion. See Wilder, 2016 WL 5231819, at *5.

Even on the merits, the SEC's new position is not justified. First, the Court disagrees with the SEC that the text of the Speech shows Hinman's intent to provide a “framework” for Corporation Finance's approach to evaluating digital asset offerings. Saying that SEC staff are “happy to help promoters and their counsel work through these issues, ” or that staff “stand prepared to provide more formal or no-action guidance” does not render the Speech itself agency guidance.^[3] To the contrary, including distinct offers of agency guidance in the Speech further reinforces that the Speech itself was not intended as guidance. See also SEC Hinman Dep. Tr. 299:21-300:2 (“Do I disagree that it announced a new framework? I think I would quibble with that a little bit. I think that's a framework many folks were using at the time.”).

The 2019 publication of the SEC's Strategic Hub for Innovation and Financial Technology's “Framework for ‘Investment Contract' Analysis of Digital Assets” (“Framework”) does not aid the SEC's interpretation either. Setting aside that the SEC has never before argued that the Speech informed the issuance of the Framework, the Framework cited the Speech in a single footnote in explaining that “the framework provides additional guidance in the areas that the Commission or Staff has previously addressed.” ECF No. 429-4 ...